Brokers’ rankings count even in volatile trading conditions

Citigroup, UBS and Goldman Sachs dominated the tumultuous broking market in June as global economic uncertainty continued to pummel investor appetite for equities.

Citigroup held a 14 per cent share of the Australian broker market for the month to June 26, executing $20.5 billion in equity trades, according to data from IRESS.

UBS ranked second on the league tables with a 12 per cent share, ahead of Goldman Sachs at 8.1 per cent. Deutsche Bank, which typically contests the top three slots, slipped to fifth position.

The total trading value for the month to June 26 reached $146.8 billion and $1.097 trillion for the year. Amid a period of investor caution, brokers are divided about when equities might swing from the slump back to more favourable conditions.

Credit Suisse head of equities sales trading Chris Mayne said trading volumes had plummeted 20 per cent compared with last year.

“The overhangs of the European situation and concerns about the domestic economy as well are affecting confidence and, in turn, activity," he said.

“The last month has been about capital raisings. Companies are erring on the side of caution and raising capital when they can."

Surfwear retailer
Billabong
was among companies to appeal to shareholders after unveiling a six-for-seven non-renounceable entitlement offer to raise $225 million, while
Brambles
raised $448 million earlier this month to pay down debt.

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Mr Mayne expects July trading volumes to remain subdued but August should herald improved trading activity as companies report their earnings, which should give more clarity about their outlook.

Head of trading at Citigroup Australia, David Haldane, said the group’s local business was benefiting from improved integration of its capital markets, advisory and equities units. He said Citigroup’s Australian institutional equities business was profitable, despite a sharp drop in broader volumes.

Citigroup Australia’s global markets business, which includes fixed income, equities and investment banking, reported a loss of $56.3 million for the year ended December 31. Commenting on global financial market conditions Mr Haldane expects the economic woes engulfing Greece to “reach a head" towards the end of the year. “It’s a matter of investor confidence and once people can look beyond Europe that will give them a lot more clarity."

UBS co-head of equities, Robbie Vanderzeil, said a big challenge for investment banks was to provide “genuine liquidity opportunities" to their clients, for example through block trades, while remaining relevant in the daily market share tables.

“This constant threat, particularly out of Europe, has seen investors wind back their day-to-day activity," Mr Vanderzeil said. “The future for the industry is about diversification of revenue from competent advice through a large range of products to a broad range of investors."

Deutsche Bank research sales head Glenn Morgan said there was no escaping the fact that share trading volumes had fallen, it was “just a matter of by how much".

He said a lack of confidence was a major problem and institutional investors were holding back from buying stocks to secure them at cheaper prices down the track. “There will be some macro factors, as well, driving much of the market moves. We need some resolution in Europe, we need to have bank recapitalisation," he said.

Deutsche, like some of its broking peers, had forecast companies would record double-digit profit growth for fiscal 2012, but that has since shrunk to 2 per cent as bad news continued.

“It’s about the third year in a row that’s happened," he said, citing continued uncertainty as a major roadblock to trading volumes.

The industry is also facing escalating trading costs, some of which are passed down to investors. “The charges that we face as brokers for market supervision and other regulatory oversight . . . those quotes are depressing market volumes," he said.

IRESS data showed Macquarie Institutional clawed a 7.8 per cent share of the broking market for the month, while Deutsche came in fifth at 7.3 per cent.

Over the year to date, Citigroup snagged the top spot with 11.9 per cent market share, followed by UBS (11.5 per cent) and Deutsche Bank (7.9 per cent). Credit Suisse, which holds fifth place at 7.6 per cent for the year, came in sixth for the past month.